Investor Lawyers Blog

Securities Fraud: CFP Board Suspends California Investment Adviser for Bilking Professional Athletes, SEC Orders Israeli-Based Firm to Pay $1.7M for Misleading Investors About Binary Options, and Ex-Movie Producer is Accused of Bilking Hedge Fund Investors

Published on: November 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Investment Adviser Who Bilked Pro Athletes Gets CFP Board Suspension
The Certified Financial Planner Board of Standards has issued a temporary suspension against Ash Narayan. The California-based investment adviser is accused of bilking professional athletes of millions of dollars.

Narayan was recently named in a Securities and Exchange Commission complaint. In June, the regulator accused him of misrepresenting his professional qualifications and misappropriating client monies when he allegedly siphoned funds from investors’ accounts and invested the money in Ticket Reserve, a flailing online sports and entertainment ticket business.

Narayan is accused of moving $33M of investor funds to the company and did not tell the athletes that he was a member of Ticket Reserve’s board, owned stock in the company, and was paid a $2M in finder’s fees for making the investments. The CFP Board called the investments “unsuitable” and not in line with clients’ objectives. The board also noted that some of the investments were made without client consent or knowledge.

SEC Awards Whistleblower $20M

Published on: November 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In its third highest award to a tipster since the inception of its whistleblower program, the Securities and Exchange Commission has awarded an individual $20M for coming forward right away to disclose “valuable information” that allowed the regulator to swiftly bring an enforcement action against the wrongdoers before they could spend the funds. This latest award ups the total awarded by the SEC to whistleblowers to $130M since 2012. The regulator issued its highest award to date, of $30M, in 2014 and awarded another whistleblower $22M in August.

The SEC Whistleblower Program allows the regulator to award the person who provided the tip 10-30% of monetary sanctions collected. The sanctions, however, must exceed $1M. The tip should relate to a federal securities law violation that already happened, is currently taking place, or is about to happen, and it must be unique information. More than one whistleblower may qualify to receive an award from an over $1M sanction obtained as a result of the tips provided.

Because the law protects whistleblower confidentiality, more specifics about this latest case, including who was involved or who received the award, were not disclosed.

Texas-Based Broker-Dealer Accused of Harming Elderly Massachusetts Investors Via High-Pressure Sales Tactics

Published on: November 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Secretary of State William Galvin is accusing Texas-based brokerage firm Investment Professionals of selling investment products to elderly customers even though the investments were not suitable for them. The San Antonio broker-dealer allegedly ran high-pressure sales contests at several partner community banks in the New England state between 2013 and 2016. Galvin said that the purported “sales gimmicks” were “unacceptable” and that his office would not tolerate them.

The Texas-based brokerage firm allegedly prioritized sales volume over whether or not the investments they were selling were suitable for the older customers. The customers had accounts at the local Massachusetts banks. For example, one bank customer, who was suffering from terminal cancer, saw so many of her assets placed in a variable annuity that she could not access her savings.

Galvin charged that these sales contests were not in alignment with Investment Professionals’ own procedures and policies and his office accused the firm of inadequate supervision, in particular of the Texas broker-dealer’s representatives who worked out of the Massachusetts banks. He noted that sales contests are “contrary to investor protections.”

Day Trader Pleads Guilty to Fraud in 2010 Flash Crash

Published on: November 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A British day trader has pleaded guilty to spoofing and wire fraud involving the 2010 Flash Crash. Navinder Singh Sarao was accused of making $40M while spoofing the stock futures market of CME Group Inc. (NASDAQ: CME) for more than five years. He also will forfeit $12.9M of the ill-gotten gains that he made from trading. Sarao is facing a maximum of 30 years in prison. It was during the 2010 Flash Crash that a trading frenzy briefly took down nearly $1 trillion from American equities.

To face the 22 criminal charges against him for market manipulation and fraud, the day trader had to be extradited from the United Kingdom to the United States. US prosecutors accused him of rigging the futures on the S & P 500 Index.

Spoofing involves manipulating prices by placing trade orders but with no plans of executing them. The purpose is to send prices moving in one direction but then cancelling the trades prior to execution in order to make money off the prices going back to where they originally were before the manipulation.

FINRA Complaint Accuses Dawn Bennett Of Not Testifying in Fraud Probe Involving Her Clothing Company

Published on: November 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Once again, financial adviser Dawn Bennett is in the news. The Financial Industry Regulatory Authority has reportedly filed a securities case against Bennett, who is the owner of Bennett Group Financial Services, for not appearing four times to testify in the regulator’s probe into her retail clothing business, DJBennett.com. FiNRA said that her failure to appear to testify violates its rules. Bennett was recently investigated for fraud while she was an independent broker at Western International Securities.

She stepped down from that firm last year after FINRA found that she may have committed securities fraud, as well as been involved in private securities transactions, undisclosed external business activities, and the misappropriation of investor funds.

It was in 2015 that she allegedly solicited Western clients in a debt deal that her retail clothing company was supposed to guarantee. Bennett sold $6M of convertible and promissory notes to about 30 investors.

401K Record Keeper is sued Over Financial Engine’s Alleged Pay-to-Play Scam

Published on: November 11, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Xerox HR Solutions is now the defendant in an alleged pay-to-play scam involving Financial Engines, Inc., which offers investment advisory services through subsidiary Financial Engines Advisors. According to the proposed class action securities case, the pay-to-play scam “conspiracy” involving the two companies compelled participants of Ford Motor Co.’s retirement plans to pay unreasonable and excessive fees. The plaintiffs are three participants in the Ford plan. The 401K-related lawsuit is Chendes et al v. Xerox HR Solutions.

According to the complaint, Xerox allegedly was paid a “kickback” by Financial Engines in exchange for including the investment adviser/managed-account provider on its record-keeping platform. The plaintiffs believe that this deal between the two companies “wrongfully” inflated the price that Financial Engines charged for its professional investment advisory services. They noted that even without the excessive fees, Xerox was already getting paid a record-keeping fee.

Plaintiffs said that of the $5.8M that participants paid Xerox HR for Financial Engines Services in the pay-to-play scam in 2015, 31% of that—$1.8M—was paid to Xerox. The plaintiffs are alleging that similar payments also occurred in 2012. They contend that the fees in question were not for any “substantial services” that either company provided to plan participants.

Investors of $7.7B NovaStar Mortgage-Backed Securities Can Move Forward with Fraud Claims Against Wells Fargo, Deutsche Bank, and RBS Securities

Published on: November 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In New York, US District Judge Deborah A. Batts has certified a class of investors to go ahead with fraud claims that they’ve brought against Wells Fargo (WFC), RBS Securities (RBS), and Deutsche Bank (DB). The banks underwrote $7.7B of NovaStar mortgage-backed securities. The lead plaintiff in the MBS fraud case is the New Jersey Carpenters Health Fund. Wells Fargo Advisors LLC was previously Wachovia Capital Markets.

The plaintiffs contend that the defendant banks lied in the securities’ offering documents. Judge Batts held that the fundamental question at issue is whether the bank did, in fact, make the allegedly misleading or materially false statements.

NovaStar issued six residential mortgage backed-securities that the banks underwrote in 2006. These RMBS collectively held over $7.7B in assets. By mid-2009, in the wake of the housing collapse, over half the mortgages backing the securities had defaulted. Investors sustained major losses.

The New Jersey Carpenters Health Fund, which sued not just the banks in 2008 but also subprime lender NovaStar and credit rating agencies Standard & Poor’s and Moody’s, had invested $100K in one of the securities. The credit raters are no longer defendants in the case as the claims against them from this mortgage-backed securities case were dismissed in 2011. Because NovaStar’s successor has filed for Chapter 11 bankruptcy protection, the case against the subprime lender has been stayed.

SEC Says Triad Advisors and Securities America Advisors May Have Charged Clients For Mutual Fund with 12b-1 Fees Even Though There Were Less Costlier Options

Published on: November 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to parent firm Ladenburg Thalmann Financial Services Inc. (LTS), the SEC is scrutinizing Securities America Advisors Inc., which is the registered investment adviser arm of independent broker-deal Securities America Inc., and Triad Advisors Inc., over allegations that the firms sold mutual funds that charged clients yearly marketing fees when there were less costly options available. These marketing fees are referred to as 12b-1 fees. It is paid to advisors yearly for continuing education and service.

Ladenburg Thalmann’s disclosed news that its firms were under investigation in its quarterly earnings report. In the report, the firm said that SEC staff gave Securities America Holdings and Triad reports in May and August contending that the two firms had “acted inconsistently” regarding their fiduciary duty when recommending and choosing mutual fund share classes that paid these marketing fees. The SEC pointed out that there had been less costly share classes available in the same funds.

Ladenburg Thalmann said that Securities America Advisors and Triad are looking at the SEC’s assessments and they may have to pay restitution to clients.
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FINRA Says Former MML Investors Services Broker Bilked Older Couple in Senior Fraud

Published on: November 9, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA has issued a complaint against Stanley Clayton Niekras accusing the broker of elder financial abuse. According to the regulator, Niekras allegedly cheated a couple, who are in their nineties and in failing mental and physical health, out of over $70K in financial panning services fees.

Even though Niekras didn’t have an investment advisory or financial planning agreement with the elderly couple, he allegedly billed them for hundreds of hours of time that he purportedly spent working on their “financial future” –work that he claimed to have done over four years. The purported elder fraud would have taken place while he worked for MML Investors Services. FINRA said that Niekras charged the couple $250/hr in retroactive compensation. The couple received their bill for these supposed services in 2013.

FINRA contends that Niekras knew that he had no right to the “financial planning fees or the “estate planning” fees he was charging the couple. The self-regulatory organization said that the broker, who had been contending with tax liens, had told MML Investors Services that he could cover the liens because of commissions he was expecting. Niekras purportedly thought that he could sell variable annuities to the children of the older couple, who had gifted them with about $500K in securities and cash each.
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UBS Financial Services to Pay Investor Almost $1M in Puerto Rico Closed-End Bond Fraud Case

Published on: November 8, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered UBS Financial Services (UBS) to pay Ana Elisa Ciordia-Robles almost $1 million, including $751,000 in compensatory damages and additional sums for legal fees and costs. Ciordia-Robles accused UBS of negligent supervision, breach of fiduciary duty, fraud, negligence, breach of contract, and violations of the Puerto Rico Uniform Securities Act, the Securities and Exchange Commission’s Rule 10b-5, and the Securities Exchange Act’s Sections 10(b). More specifically, Ciordia-Robles claimed she sustained losses from investing in UBS Puerto Rico (UBS-PR) closed-end bond funds.

When Puerto Rico muni bonds dropped in value in 2013, many investors on the island and in the mainland sustained huge investment losses. In the last few years, UBS and UBS-PR have been the subject of thousands of customer complaints over their sale of Puerto Rico municipal bond and proprietary bond funds. Claimants are alleging that these investments were unsuitable, that high concentrations of these investments were recommended, and that UBS never apprised them of the risks involved in the closed-end bond funds that they were sold. Many of these investors have since realized that their portfolios were never equipped to handle these risks.

It was just last year that UBS consented to pay about $34 million to US regulators to settle allegations related to its supervision of the sale of the Puerto Rico bond funds and use of leverage against those closed-end funds. UBS has already settled a number civil claims brought by investors through FINRA arbitration. At Shepherd Smith Edwards and Kantas, LTD LLP our securities lawyers have been working hard to help quite a number of these investors recoup these losses.